Private Placement, Contract Characteristics and Shareholders’ Embezzlement of Funds

Liu Chao; Ruan Yongping; Zheng Kai

doi:doi:10.16538/j.cnki.fem.20191210.003

Summary

Using firm-level data of Shanghai and Shenzhen A-share listed companies of private placement in China from 2007 to 2017, this paper examines the effects of private placement and the different contract characteristics on shareholder expropriation by the DID regression model. The results show that:（1）Funds occupied by large shareholders significantly increase after private placement.（2）The higher the price discount, the more serious the phenomenon of subsequent capital occupation by major shareholders.（3）Compared to cash subscription, large shareholders have stronger motivation of tunneling under asset subscription.（4）The participation of institutional investors could effectively suppress the tunneling behavior of major shareholders. Finally, this paper also discusses the possible ways of capital occupation by controlling shareholders. Research shows that the related party transactions between major shareholders and listed companies increase significantly after private placement, and the larger the related party transactions, the more serious the tunneling of capital occupation.

The contributions of this paper are as follows: Firstly, this paper transfers the study of tunneling behavior of large shareholders from the initial issuance part to the subsequent appropriation of funds, and more clearly reveals the interests transmission behavior of large shareholders in the process of private placement, which greatly enriches the literature of private placement. Secondly, this paper adopts the most commonly used index to measure the tunneling of major shareholders, namely capital occupation, and finds that the higher the discount rate is, the more serious the subsequent funds occupation of major shareholders will be. Thus, it provides new empirical evidence for the logical relationship between the discount rate and the tunneling behavior of major shareholders, and makes up for the deficiency of existing theories. Thirdly, The conclusions also have important policy implications. In the post-private placement era, effective governance on other tunneling means of major shareholders is of great policy significance to both investors and regulatory authorities.